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Who doesn’t like a higher rate of return, especially if the risks are the same?

That’s been the situation facing Chinese consumers recently – at least that’s the situation many think they’ve been facing.

Online funds, such as the ones launched by Tencent, Alibaba and BaiduBaidu(NASDAQ: BIDU), have had investors rushing to sign up for several reasons: firstly, the rate is typically better than those being offered elsewhere; secondly, the risk is seen as comparable to similar bank products: the investments are effectively guaranteed by the companies and conventional wisdom holds that tech giants Tencent and Alibaba are no more likely to go out of business than major government-backed banks; and thirdly, the convenience: China’s internet population is far more mobile than in other countries and many purchases are made through smartphones. Mainstream banks also offer this option, but they typically require a minimum level of investment, whereas the internet banks do not.

Rumors are spreading that internet banks could face transactional risks that are not applicable to the high street banks: some reports have described online transactions sending funds to the wrong destination or simply vanishing into the World Wide Web, but these fears seem to be overblown and at any rate have been largely brushed aside by investors eager to make more money.

But in China, change can happen fast. That is not to say that something will happen imminently, but when the government feels threatened by outside influences, you can be sure that regulation will soon follow.

Take Sina Weibo as an example. Soon after launching in 2009, it grew so quickly and became so popular that the media landscape in China changed almost overnight. Sina was soon forced to employ extensive censorship controls from within to appease the government, but the narrative was no longer being set by those in charge.

Firstly, officials at all levels were instructed to open microblog accounts to engage directly with the people, though many of those accounts soon went untended. But neither the official accounts nor the army of commenters writing posts more in line with the official narrative could prevent undesirable stories from gaining prominence, so a different tack was taken.

As is the way in China, a monkey is killed to scare the chickens. In this case, a few high-profile bloggers, or Big Vs as they are known, were targeted – and it worked. In recent months, Sina Weibo has become sanitized to the extent that users have deserted it in their droves. Tencent’s Weixin (WeChat) is currently the social media platform of choice in China, but if the dialogue gets too unruly there, steps will be taken to calm things down.

It’s an example of the speed with which things can change in China, and, similarly, it should come as no surprise that internet finance products have seen so much growth so quickly. Chinese stocks have been tanking for five years and with the property market out of reach for many investors, options have been limited, much less attractive ones.

The mainstream banks have been forced to respond to this new challenge by raising deposit rates as far as they can, but 3.3% is nothing to what’s being offered online. And that’s where the regulators have come in.

Recent moves have seen virtual credit card and QR code-enabled payments stopped for the foreseeable future, meaning that the banks are kept in the loop between vendors and customers rather than being bypassed. The banks themselves have also imposed limits on how much money can be transferred into these payment systems, which has also put the brakes on the entire system. The PBOC is also looking to cap the total number of transactions, another move that would protect the banks, who have been losing business at an alarming rate.

But CKGSB Professor of Finance Chen Long says regulators should support – not strangle – internet finance. Chen also recognizes that the sector needs more regulation right now to prevent predators sparking a potentially disastrous blow up further down the line, but he argues that the very creation of these kinds of financial products will help to promote and propel financial reforms in China.

As for when those reforms take place, the landscape could again be dramatically altered. But as has been witnessed in other areas, you can expect the tech firms – lightning quick in their strategies when compared with the lumbering movements of the state sector – to readjust and put their next plans into action, plans that will last as long as the authorities allow.

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